The US ISM manufacturing PMI hit a four-year high in July! The employment index returns to the expansion range AI infrastructure construction pushes semiconductor demand to continue to heat up

The Zhitong Finance App learned that the US manufacturing boom further improved in July and recorded the best performance in more than four years. According to data released by the American Institute for Supply Management (ISM) on Friday, the ISM manufacturing PMI rose to 55.6% in July, up 2.3 percentage points from June, the highest level since May 2022, and is also in the expansion range for the seventh month in a row. ISM said that a PMI that continues to be above 47.5% usually means that the overall economy continues to grow. The July data corresponds to the annualized growth rate of US real GDP of about 2.8%, indicating that the US economy has been expanding for the 21st consecutive month.

Judging from the sub-indicators, the manufacturing boom has improved across the board. The new orders index rose to 56.7%, up 0.7 percentage points from June, and expanded for the seventh month in a row; the production index rose sharply to 58.5%, up 6.3 percentage points from the previous month, the highest level since November 2021; and the employment index rose to 52.8%, up 3.1 percentage points from June, for the first time in 33 months, reflecting the renewed expansion of recruitment by manufacturing companies. According to the survey, 60% of companies surveyed said they are hiring, and only 40% of companies still control the size of personnel.

Meanwhile, the order backlog index rose from 50.5% to 55%, and the supplier delivery index rose to 58.9%, indicating a slowdown in supplier delivery for the eighth month, reflecting the continued strong demand in the manufacturing industry. The inventory index fell slightly to 51.2% and continued to expand, while the customer inventory index fell to 40.7% and continued to be in the “low inventory” range. ISM pointed out that continued low customer inventories usually mean that companies will still need to replenish inventory in the future, supporting subsequent production.

Export demand has also improved markedly. The new export orders index returned to the expansion range in July, rising to 53%, up 4.5 percentage points from June, the highest level since March 2022; the import index rose to 55.7%, the highest since June 2021, indicating that the manufacturing industry's demand for imported raw materials and components continued to rise.

On the price side, although the price index fell for the third month in a row, from 73% to 71.1%, it is still at a high level, which means that raw material prices have been rising for 22 consecutive months. ISM pointed out that rising steel and aluminum prices, tariffs on imported goods, and the Middle East situation driving up the prices of petroleum-related products are still the three main factors in rising manufacturing costs. 50.2% of companies reported an increase in procurement prices in July, down from June, but the price pressure is still obvious.

In terms of industry performance, 15 of the 18 manufacturing industries achieved growth, and only the chemical industry experienced contraction; among the six major manufacturing industries, transportation equipment, machinery, computers and electronic products, and the food, beverage, and tobacco industries continued to expand. In terms of new orders, a total of 12 industries achieved growth; in terms of production, 12 industries also achieved growth, and no industry experienced a decline in output.

It is worth noting that AI infrastructure construction continues to be an important driving force for manufacturing growth. Companies in the computer and electronics industry said that market demand for semiconductors, artificial intelligence, advanced packaging and high-performance computing continues to grow, while corporate sales, capacity expansion and customer support investment have remained strong, bringing positive prospects to the industry. Machinery industry companies, on the other hand, pointed out that as global AI infrastructure construction enters the full launch stage, procurement and manufacturing of data center-related products are accelerating across the board. Demand for semiconductor products used in data center power supplies, networks, and optical communication connections is growing rapidly. Orders from the defense industry also remain at historically high levels, while demand for medical, industrial and consumer electronics products is relatively weak.

However, the company remains cautious about the future business environment. ISM said that 38% of the companies surveyed in July had positive reviews and 62% had negative reviews. Among them, 57% of negative reviews mentioned price fluctuations, 43% mentioned the impact of the situation in the Middle East, 22% reported extended delivery cycles, and 18% concerned tariff issues. Many companies also said that transportation costs and energy prices have risen again due to the situation in the Middle East. Asian customers are adjusting procurement sources to avoid tariffs, while some industries are worried that price increases and extended supply cycles have surpassed the pandemic period, putting pressure on future demand.

In addition, according to the procurement cycle data released by ISM, the average procurement cycle for capital expenditure in July was 172 days, an increase of 1 day compared to June; the procurement cycle for raw materials for production was extended to 87 days; and the procurement cycle for maintenance and operation materials increased to 50 days, further reflecting that the supply chain is still somewhat tight.